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The Fissures Are Growing for Papers

While the rest of us were burning hot dogs on the grill last week, the newspaper industry seemed to be lighting itself on fire.

There have been cracks in publishing operations that are both hilarious and terrifying. The Times-Tribune in Scranton, Pa., published a box score for a baseball game that was never played, after one of the coaches made up a result to spare the other team the embarrassment of a forfeit.

The U-T, the daily newspaper of San Diego, published a two-week-old blog post — on its front page. And most notoriously, “This American Life” revealed that Journatic, a content farm owned in part by the Tribune Company that produces local articles on the cheap, was using fake bylines. Some of those hyperlocal pieces, which ran in newspapers like The Chicago Tribune, The Chicago Sun-Times, The Houston Chronicle and The San Francisco Chronicle, were written in the Philippines.

Equally confounding, when The Times-Picayune of New Orleans got around to offering jobs to some of its employees in its lower-cost digital news operation — the print newspaper will come out three times a week — many of the more prominent staff members took a look at the business plan and said, “No thanks.”

Or maybe not so confounding. Maybe they were making a choice to pull back from an industry that by all appearances was starting to come apart. Between operational fiascos and flailing attempts to slash costs on the fly, it’s clear that the print newspaper business, which has been fretting over a looming crisis for the last 15 years, is struggling to stay afloat. There are smart people trying to innovate, and tons of great journalism is published daily, but the financial distress is more visible by the week.

“Most newspapers are in a place right now that they are going to have to make big cuts somewhere, and big seams are bound to show up at some point,” said Rick Edmonds, a media business analyst at the Poynter Institute.

Some of the bigger cracks can’t be papered over by financial engineering. Hedge funds, which thought they had bought in at the bottom, are scrambling for exits that don’t exist. Many newspaper companies are hugely overburdened with debt from ill-timed purchases. And though it is far less discussed, newspapers are being clobbered by paltry returns on underfunded pension plans.

Two highly placed newspaper executives told me last week that while the industry had already experienced a number of strategic bankruptcies, more will most likely take place to deal with pension obligations.

As Mike Simonton of Fitch Ratings pointed out to me, very few bond investors are even willing to lend to papers. He said the pension obligations “represent a call on capital at a time when newspapers desperately need to deploy capital toward evolving their business models and adapting to the digital world.”

The global pension plan at Gannett, which owns 82 daily papers, is underfunded by $942 million, and McClatchy, which owns 30 dailies, is short $383 million, according to Mr. Simonton, even though both companies have been pouring tens of millions in precious cash into the plans to shore them up. Many United States companies have onerous pension obligations, but the decline in revenue gives newspapers a tougher hill to climb.

The employees who earn those pensions are quick to point out that management in many of the companies still found money for ill-advised stock buybacks, along with lucrative dividends and executive compensation, neither of which was supported by results.

Journalists who are constantly being asked to do more with less wonder why the owners didn’t invest to meet the coming threat and to add the funds to honor commitments to employees back when they were making great gobs of money.

Photo

In the newsroom of The Times-Picayune in New Orleans, employees watched TV coverage of layoffs at the paper. A number of prominent journalists offered jobs to stay have decided to leave.Credit
Catherine Threlkeld/The Times-Picayune, via Associated Press

People take heart that Warren Buffett has been buying newspapers, but it is worth noting that when he bought Media General newspapers, he left the pension liabilities with Media General’s parent company.

(The New York Times has taken a very hard line at the bargaining table over the issue of pensions, which it cites as a risk to investors in its forward-looking statements. The paper’s pension plan is short $522 million even after the company made a $151 million contribution last year.)

Those of us who work inside the racket like to think of our business as unique, but with underfunded pension plans, unserviceable debt and legacy manufacturing processes and union agreements, the newspaper industry looks a lot like, well, steel, autos and textiles.

The bread and butter for most of the industry is local information. But it has become seemingly impossible to make money creating daily compendiums and throwing it on people’s doorsteps. Journatic, the content provider, proceeds from the bold premise that generating community news can function on a call-center model, where a staff unrelated by geography or affiliation will serve customer needs. The company allowed employees to gin up fake bylines to give the appearance of a connection.

And it’s not just newspapers. AOL’s ambitious local news effort, called Patch, is losing $150 million a year, by some estimates, and is no closer to cracking the code.

Given that context, it’s not hard to see why Advance Publications is making huge moves in some of the 25 cities where it publishes newspapers, most notably in New Orleans, where it is spending the summer reducing the staff.

Advance’s regional Web sites have generated traffic and have active forums, but they are a miserable place to consume news. Balky and ugly, with a digital revenue base below much of the rest of the industry, they seem like a shaky platform on which to build a business. Some recent traffic trends are not encouraging. According to Nielsen, The Times-Picayune’s site, Nola.com, had 639,000 unique visitors in May, compared with over a million in that month a year ago.

Once upon a time, the Newhouse family kept unions at bay by promising lifetime employment, but now the company wants to shed people, and legacy costs, as quickly as it can. The plan is built on accounting, not strategy, which is why some of the newspaper’s heavy hitters have declined offers from the newly reconfigured enterprise.

David Hammer, who played a large role in The Times-Picayune’s coverage of the rebuilding efforts after Hurricane Katrina in 2005, took a job with the New Orleans CBS affiliate, WWL-TV, doing investigative work; he will be joined by Brendan McCarthy, one of the newspaper’s young stars.

Stephanie Grace, a former statewide columnist, declined a job as a reporter, and Bill Barrow, a longtime reporter who covered health care, is going to work for The Associated Press. Bob Marshall, a Pulitzer Prize winner and the newspaper’s outdoors editor, took a pass as well.

They are the kind of people that separate The Times-Picayune from, well, Journatic. “When you look at it, they were asking us to take a job where the revenues are still very dependent on the print product,” Mr. Barrow said. “But that newspaper is no longer a priority and no one knows what it is going to look like or what it will have in the way of news when it comes out. There are too many unknowns.”

The diminution of The Times-Picayune is a profound loss and a bet on some very wobbly assets. Still, who is to say that the Newhouse family is any more misguided than the rest of an industry that is scrambling for safe ground? After all, the math is daunting, and there is a shortage of magic bullets.

But as they proceed, the Newhouses should remember that cutting corners ignores a fundamental fact: great journalism, on any platform, is the one sure hedge against irrelevancy.

E-mail: carr@nytimes.com;

Twitter: @carr2n

A version of this article appears in print on July 9, 2012, on page B1 of the New York edition with the headline: Fissures Are Growing For Papers. Order Reprints|Today's Paper|Subscribe